Member Article

Starting next year, California residents who don’t have health care coverage could face a state tax penalty. Under the new Minimum Essential Coverage Individual Mandate, California residents who fail to maintain minimum essential coverage for themselves and their dependents could owe a state tax penalty, unless they qualify for an exemption. Although the individual mandate under the Affordable Care Act (ACA) has not been repealed, the associated tax penalty under the ACA was reduced to $0, as of 2019.

Employer Reporting Requirements for Self-Insured Plan Sponsors

The new law includes a reporting requirement for entities that provide minimum essential coverage to California residents, including employers that provide self-insured health coverage. Beginning in 2021, employers with self-insured health plans must annually report to the California Franchise Tax Board (FTB) information about employees covered by the plan in the prior year. This reporting requirement may be met by filing with FTB copies of IRS Form 1095-C or Form 1095-B, as applicable, used to comply with the ACA reporting requirements. A penalty of $50 per covered individual applies for any failure to comply with the new FTB reporting requirement. The reporting requirement will take effect for coverage provided in 2020, and those forms must be filed with FTB by March 31, 2021.

Health insurance issuers and other providers of minimum essential coverage are also required to comply with the annual FTB reporting requirement, and may do so by filing copies of Form 1095-B, used to comply with the ACA reporting requirement for health insurance issuers.

Coverage that Qualifies as Minimum Essential Coverage under California Law

The following types of coverage will qualify as minimum essential coverage under the new California law:

• Most employer-sponsored group health plans;
• Individual health policies that meet the ACA's market requirements, such as those purchased through Covered California;
• Certain government-sponsored programs, such as Medicare, Medi-Cal, TRICARE, and CHIP; and
• University of California health coverage for students.
  
  

Employer-sponsored group health plans that provide only hospital, fixed indemnity, or specific disease coverage; accident or disability income insurance; or other “excepted benefits” won't qualify as minimum essential coverage.

Penalty Amount

The standard penalty for not maintaining minimum essential coverage during every month of the tax year is the greater of: 1) 2.5% of the taxpayer's household income above the state income tax filing threshold, or 2) $695 per adult and $347.50 per child (up to a maximum of $2,085). If less than the amount of the standard penalty, the penalty would be equal to the average premium for a "bronze" level health plan purchased at Covered California. The dollar amounts for the standard penalty will be increased annually for inflation.

Exemptions

To avoid the penalty, taxpayers must maintain qualifying minimum essential coverage throughout the year for themselves, their spouse or registered domestic partner, and their dependents, or qualify for an exemption. A California resident that qualifies for an exemption will not be subject to a penalty for failing to maintain minimum essential coverage during the months of the tax year that the exemption applies.

Exemptions apply in the following circumstances:

• Financial hardship or religious conscience, as determined by Covered California
• Income below the state tax return filing threshold
• If premium contributions for health coverage exceed 8.3% of the taxpayer’s household income for the taxable year
• For short coverage gaps of three consecutive months or less
• General hardships, such as homelessness, death of a family member, or domestic violence
• For members of health care sharing ministries, members of an Indian tribe, non-residents, and incarcerated individuals.
  
  

If you have any questions about the California Individual Mandate, employer reporting, or the ACA, please contact a member of the Hanson Bridgett Employee Benefits Group